New York
CNN
—
Federal regulators have sued Binance, the world’s largest crypto exchange, accusing the company of running an illegal exchange in the United States and commingling billions of dollars’ worth of customer funds.
The Securities and Exchange Commission, Wall Street’s primary regulator, alleges the company acted in “blatant disregard” of US securities laws. It also named Binance’s CEO Changpeng Zhao, known as CZ, as a defendant.
“Through 13 charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” said SEC Chair Gary Gensler in a statement Monday.
The SEC also alleges that Zhao and Binance commingled customer assets and even diverted some to an entity controlled by Zhao.
Binance said in a blog post Monday that it was disheartened by the SEC’s complaint but that it takes the allegations seriously.
“We intend to defend our platform vigorously,” it said. “Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.”
In a tweet Monday, Zhao said his team was “standing by, ensuring systems are stable, including withdrawals, and deposits.”
He also tweeted the number 4, his own shorthand for “Ignore FUD, fake news, attacks, etc.” (FUD stands for “fear, uncertainty, doubt” in crypto circles.)
Binance has long argued that it isn’t subject to US laws because it doesn’t have a physical headquarters in America. Zhao claims that the company’s headquarters are wherever he is at any point in time, “reflecting a deliberate approach to attempt to avoid regulation,” according to the CFTC’s complaint.
Gensler alleged that Zhao and Binance misled investors about risk controls, and that they “attempted to evade US securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms.”
The SEC suit follows a complaint earlier this year from the Commodity Futures Trading Commission. That agency accused Binance and Zhao of violating US derivatives trading laws in multiple ways, including allegedly secretly coaching “VIP” customers within the United States on how to evade compliance controls.
Binance makes money primarily from collecting fees on crypto trades. Zhao started the company in China in 2017, and later relocated to avoid a Chinese government crackdown on digital assets.
US regulators have been intensifying their scrutiny of crypto platforms since the collapse of FTX, the exchange founded by Sam Bankman-Fried, in November last year. Before it filed for bankruptcy, FTX briefly sought a lifeline through its much-larger rival, Binance, but the deal was quickly called off, with Binance saying that FTX’s problems were “beyond our control or ability to help.”
FTX is now at the center of what federal prosecutors have called one of the biggest financial frauds in US history. Bankman-Fried has pleaded not guilty to multiple counts of fraud and conspiracy and is awaiting trial. Several of his former business partners have pleaded guilty and are cooperating with authorities.
